United Kingdom

United Kingdom

Dong widens its net to hit 2020 offshore goal

EUROPE: While some utilities are pulling back from offshore investment, scared off by policy uncertainty and high costs, Danish power company Dong Energy is driving ahead.

Partners Dong and Siemens co-own A2Sea, which supplies installation vessels (pic:Siemens)
Partners Dong and Siemens co-own A2Sea, which supplies installation vessels (pic:Siemens)

The global leader in offshore wind development has already built more than 2GW of capacity in Danish and UK waters, including the world's largest operating offshore wind farm, the 630MW London Array.

It is currently building — or is committed to building — a further 1.46GW in UK and German waters and, by 2020, its goal is to have completed 6.5GW of offshore wind capacity, roughly the same as the current operational global total.

Strategic partnerships

To reach its ambitious goal, Dong has brought a number of partners on board. A framework agreement signed with Siemens in July 2012 is key in this respect. It will see the German turbine manufacturer supply 300 of its new SWT-6.0-154 turbines by 2017. Two have already been installed at Gunfleet Sands 3 in the Thames estuary off the UK's Essex coast. At the signing of the agreement, then acting CEO, Carsten Krogsgaard Thomsen, described it as "a key element of Dong Energy's objective to significantly expand offshore wind and strengthen (its) position as market leader".

Dong and Siemens have collaborated before, when Dong acquired Danish installation and service vessel company A2Sea in 2009 and then sold on a 49% stake to Siemens the following year.

A DKK 11 billion (EUR 1.47 billion) investment in Dong by Goldman Sachs and Danish pension funds, announced in October 2013, should provide a further boost. Goldman Sachs is investing DKK 8 billion, ATP is putting in DKK 2.2 billion and fellow pension fund PFA DKK 0.8 billion, giving them stakes in Dong of 19%, 5% and 2%, respectively. The Danish state has reduced its share from around 80% to 57.2%, but remains majority shareholder.

Fritz Schur, who stands down as Dong's chairman this month, says the equity boost will enable the company to carry out its growth strategy, including a significant investment programme in offshore wind. The plans comprise extensions and new projects in a number of countries. Some projects are being planned by Dong alone, while in others it has been involved as a consortium partner. The company remains committed to the UK, unlike several other developers, which have recently scaled-back UK ambitions.

UK focus

In partnership with Scottish Power Renewables, it is currently building the 389MW West of Duddon Sands project in the Irish Sea, set to be completed this year. Meanwhile, the 210MW Westermost Rough project, under construction in the North Sea with 35 Siemens SWT-6.0-154 turbines, is also due for completion later this year. Two planned extension projects in the Irish Sea, Burbo Bank and Walney, would add around 1GW of capacity by 2016 or 2017.

In December last year, Dong acquired the Race Bank project from UK utility Centrica, for just £50 million (EUR 60 million). Planned for a site in the Greater Wash, Centrica has taken the up-to-580MW project through the permitting process while the geotechnical and geophysical surveys of the site have already been carried out. A decision to actually build it is pending, but the project is fully consented and offshore construction could start in 2017.

"Race Banks fits very well into our existing pipeline of offshore wind projects," says Samuel Leupold, executive vice-president of Dong's wind power division. "The addition of up to 580MW in our UK project portfolio underlines our commitment to the UK market in general, and to the UK offshore wind sector in particular. I'm confident we can turn this into a successful project."

More distant UK projects include developing the Round 3 Irish Sea zone, with Celtic Array, a 50/50 joint venture between Dong and Centrica. The first phase — the 2.2GW Rhiannon offshore wind farm — could come online towards the end of the decade. The zone as a whole could eventually host more than 4GW of capacity.

Another Round 3 project Dong is involved with is Project One in the Hornsea zone, in the North Sea 103 kilometres off the Yorkshire coast. It is working with Mainstream Renewable Power and Siemens, and the application for the 1.2GW project, is currently with the UK Planning Inspectorate. Around 4GW of capacity could be developed in the zone in the long-term.

On a slightly smaller scale, involvement in the First Flight Wind consortium, together with UK developers RES and B9 Energy, would see Dong claiming a stake in Northern Ireland's first offshore wind farm. Planned for a site off County Down, the 600MW project could come online around 2020.

German offshore

The German market is another key pillar in Dong's offshore strategy. The company's Borkum Riffgrund 1 project is under development in the North Sea, 37 kilometres off the Lower Saxony coast. Set to feature at least 77 Siemens 3.6MW turbines, the project is scheduled for completion in 2015. In November Dong announced it would build Gode Wind 1 and 2, for a total cost of EUR 2.2 billion. Acquired from PNE Wind in August 2012, the 330MW and 252MW projects will comprise 97 Siemens 6MW turbines in total. They are planned for sites to the north of Juist and Norderney islands, next to Borkum Riffgrund 1.

"The investment in the Gode Wind projects will be our biggest ever and will cement our leadership position in offshore wind," says Leupold. Offshore construction will begin in the first half of 2015, with full commissioning expected in the second half of 2016.

Once Dong decided to go ahead with the project, it wasted no time in preparing for construction. In November it contracted GeoSea to transport and install the monopile foundations. In January A2Sea was lined up to install the Siemens 6MW turbines from 2015.

Other markets

France's nascent offshore wind sector is also of interest to Dong. It is part of the EDF-led consortium that was successful in the first French offshore wind tender in April 2012. The consortium, which includes French turbine manufacturer Alstom, was awarded the development rights to three sites. It plans to build 1.4GW of capacity using Alstom's 6MW turbines. The sites comprise the 450MW Courseulles-sur-Mer, the 500MW Fecamp and the 480MW Saint-Nazaire projects, which could be online towards the end of the decade.

Finally, Dong is eyeing development possibilities off the Dutch coast. In December last year it acquired the remaining 50% stakes in Den Helder 1, Breeveertien 2 and West Rijn from its joint venture partner, UK utility SSE. Planned for sites in the North Sea, their total consented capacity is just over 1GW.

"The Dutch offshore wind market has great potential, and with these three development projects, Dong Energy is looking forward to contributing to the achievement of the announced Dutch target of 4.45GW by 2023," says Leupold.

A decision to build the projects has yet to be made, but all three are already fully consented and could potentially be built by the end of this decade. It is "vital that there is full visibility about the investment conditions", if Dong is to subsequently make a final investment decision to build the projects, as part of its 2020 strategy, Leupold adds.

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